The Emergence of Accidental Landlords in the 2023 Housing Market

A landlord recently remarked to me that he felt that there were more 'posher' up-market properties coming up for rent in the last six months compared to a couple of years ago. 

I stated that this was the case, and it wasn't all down to the recent rental growth – it was the growth of the upmarket 'accidental landlord'.

With the housing market returning to standardised trading conditions with normalised levels of demand, and predictions of a further correction in house prices, I am starting to see the return of the ‘accidental landlord’, but in a somewhat different form to what they were in 2008/9. 

An ‘accidental landlord’ becomes a landlord unexpectedly or unintentionally. This often occurs when homeowners decide to rent out their property instead of selling it due to a change in personal circumstances, a stabilised property market after a boom period, or other unforeseen reasons. 

While the sales market has experienced a period of strength in recent years, activity has started to slow down from the levels seen in 2021/22. In contrast, there has been soaring demand for rental properties.  

Some homeowners, fearing not achieving their desired selling price, might opt to keep ownership of their properties and instead rent them out until market conditions improve.  

Back in 2008/09, this trend was particularly clear in the middle market segment

However, in 2023, many property commentators are suggesting if accidental landlords do start to appear, it will be in the upper quartile property segment (i.e., the top 25% of properties by value), where many homeowners bought in the post Lockdown race for space of 2021/2.  

Many of these could afford to be patient in pursuit of best-selling conditions, to maximise the sale price of their property. The rise of accidental landlords can be attributed to numerous factors, such as limited property appreciation, increasing mortgage costs, and robust demand for rentals, making renting out properties an attractive alternative. 

Accidental landlords are also created through other diverse circumstances

Irrespective of what is happening in the economy and the property market, births, deaths and marriages continue. There will always be some new couples who decide to rent out one of their properties after moving into a shared home, while others inherit properties through the passing of parents or grandparents.  

The current average tenancy length of 51 months provides these new landlords with just over four years to allow property values to recover before re-evaluating the market. However, stepping into the role of an accidental landlord carries specific implications that homeowners need to be mindful of. 

Understanding the tax implications is a crucial aspect that accidental landlords should grasp 

Transitioning to landlord status may result in the loss of specific tax benefits, including stamp duty relief, and need payment of income tax on rent. Furthermore, upon selling the rental property, landlords may become liable for capital gains tax on the profit made from the sale, as it is no longer considered their primary residence and I implore you to take advice from an accountant. 

To mitigate the impact of tax changes, some landlords have chosen to incorporate their properties into Limited Companies. Corporate structures offer potential tax relief on mortgage costs and the opportunity to pay lower Corporation Tax rates than individual income tax rates. However, incorporating properties involves added expenses, such as stamp duty and capital gains tax on existing properties transferred to the company.  

Individual landlords with only one property may find incorporation less helpful, but it could be a viable option for those planning to expand their buy-to-let portfolios. 

Investing in property maintenance is a crucial consideration for accidental landlords 

Well-maintained properties are more likely to keep or increase their value over time. Retrofitting properties to improve energy performance can also help tenants and future buyers, helping reduce utility costs and enhance overall comfort. 

Accidental landlords must diligently handle this critical area: appropriately protecting tenants' deposits. Please safeguard deposits adequately to avoid significant compensation claims, with landlords potentially losing up to three times the deposit amount. To protect against such risks, landlords must ensure compliance with deposit protection schemes and provide tenants with essential documents, including Energy Performance Certificates, the Government's "How to Rent" guide, and current gas safety certificates. 

Misunderstandings can inadvertently arise to renting direct to family or friends, leading to legal disputes

Even though you know the tenant, it would still be wise to employ the services of a letting agent to establish clear terms in writing at the outset of a tenancy to avoid potential conflicts and protect the rights of both landlords and tenants. This becomes particularly relevant as the Renters Reform Bill, set to introduce significant changes to the private rental sector, including tenancy length and the process of regaining possession, is awaiting approval. 

My overriding message to every accidental landlord is that they must be aware of the tax implications, consider incorporation a potential strategy, invest in property maintenance, protect tenants' deposits, and establish clear terms to avoid disputes. Additionally, there are over 170 pieces of regulations regarding renting your property out. Also, it's essential to stay informed about forthcoming changes in renters' rights introduced by the Renters Reform Bill.  

In conclusion, with the housing market experiencing a slowdown, I suspect an increasing number of homeowners are considering becoming ‘accidental landlords’ by opting to rent out their properties instead of selling. 

You must weigh the risks of renting your home and the potential rewards

I know of many stories of homeowners who waited five or six years after the Credit Crunch to hit their ‘target price’ for their existing home, only to realise it cost them tens of thousands of pounds in costs and the price they had to pay for their new home. On the other side of the coin, I know plenty of accidental landlords in who used the fact that they became an accidental landlord as an opportunity to build an impressive rental portfolio over the last 15 years.

If you are uncertain or do not possess all the facts, don't hesitate to contact me to discuss your plans. Then I can give you appropriate level-headed advice to make the right decision. By taking proactive steps and understanding the risk and rewards of being an ‘accidental landlord’ in, you can navigate the property market successfully, even during uncertain times in the housing market.